Tax Reform Talk is Idle Chatter, Opines Lee Hamilton '52

November 13, 2013

The United States has "bloated, off-kilter tax laws," according to Lee Hamilton. In a newspaper column, the veteran statesman and 1952 graduate of DePauw writes, "The last time lawmakers managed to find a way to simplify and reshape the tax code was almost three decades ago, in 1986, when Ronald Reagan was still president. Since then there have been more than 15,000 adjustments and amendments, leaving a mess that just about everyone agrees must be cleaned up. Odds are against Congress managing the task, but its handling of the debate on tax reform tells us a lot about how members approach difficult issues."

Hamilton, a Democrat who served 34 years in the U.S. House of Representatives, observes that "this latest effort to rewrite the tax code is saddled by a deep-seated problem that spans both parties and all ideologies: political timidity. Tax avoidance is a highly sophisticated and lucrative business in this country, and politicians address it at their peril."

He adds, "Sure, you hear plenty from politicians about tax reform, but it’s all generalities. They talk about a simpler code or a fairer code or a flatter code, but in truth, almost every member of Congress talks in gross generalities about the monstrosity that is the tax code and comes out fervently for reform, without actually taking a stand on the tough issues.Tax reform is meaningless without specifics."

Hamilton, who majored in history and played basketball at DePauw, says there's plenty to talk about. "Continuing to exclude employer contributions for health care, for instance, will cost taxpayers some $760 billion over the next five years, according to Congress’s Joint Committee on Taxation — but getting rid of it will surely anger employers and employees. We could recoup $379 billion over the next five years by cutting the mortgage interest deduction, but how many homeowners do you know who would go along with the idea? The political power of the interests that benefit from reduced tax rates on dividends and long-term capital gains, which will cost the Treasury $616 billion between now and 2017, is immense. So, in its own way, is that of supporters of the deduction for charitable contributions ($239 billion).

"In all, tax breaks cost the Treasury some $1.1 trillion a year -- which puts them well ahead of most other forms of federal spending. Yet each has its own constituency -- often a vocal, well-funded, well-organized one."

He concludes, "Politicians who call for 'tax reform' without going into specifics butter their bread on both sides -- they ride the public outcry against the tax code in general, while avoiding the outcry from people hurt by the changes that tax reform would inevitably bring. After all, a 'loophole' to one group is usually a 'lifeline' to another. So nothing happens ... Until Congress shows us that its members possess the courage to detail publicly what’s needed, talk of tax reform will be just that: talk."

Now director of the Center on Congress at Indiana University, Lee H. Hamilton has remained active following his retirement from Congress, serving as vice chair of the 9/11 Commission and Iraq Study Group. He has authored Strengthening Congress; How Congress Works and Why You Should Care; and A Creative Tension: The Foreign Policy Roles of the President and Congress. Hamilton has been a frequent visitor to DePauw over the years and delivered an Ubben Lecture on March 15, 2011.